In which of the following do you pay income tax?
A. when employed in a well paid job
B. when buying bread
C. when buying a car
The answer is B and C. How could that be possible?
For example, in A, say the employee is working for a company that is a national bakery and he is a senior manager. His gross income before tax is four times that of the average worker at the bakery and he pays income tax eight times the average, i.e. disproportionately since he is a high earner. He is satisfied to pay that higher rate of tax because he believes that it is only fair that the better off support government and its welfare services, which are to the benefit of the poor and needy. Of course, the poor are unable support the government by paying taxes, that is obvious.
One day he is discussing the price of bread with the bakery’s finance manager, who explains to him what production costs have to be covered before the company can earn any profit for its shareholders. One big cost is wages and salaries. Therefore, the price of each loaf of bread contains an amount that will cover the costs of the workers baking the bread when multiplied by the number of loaves normally sold. But wait, what about income tax? The cost to the bakery is the total wage bill for the employees which includes amounts that will be deducted from the employee’s wages and sent to government satisfying their income tax coding. Therefore, the price of bread contains an amount corresponding to the wages taken home by the bakery workers and the amounts of income tax demanded by government.
We can see now that the buyers of bread are contributing to the income taxes of the bakery workers. We can also see that the worker’s income taxes are lumped together and included in the price of bread. The workers are totally deluded in thinking that they pay income tax whereas it is the bakery’s customers that actually bear the cost. They believe that, but for the tax, their incomes would be higher, but that is not so. The price of their labour in the employment market has already been determined by the amount of money they are satisfied to take home, after tax. Meanwhile, the bakery sees the expense of making more money available to pay their income tax as an ’employment tax’, easily calculable, which is an unfortunate cost of doing business, and bread buyers have no option.
It is a great illusion that the workers feel that they are paying income tax. In fact, they do not start paying tax until they buy the things they need, such as bread, which even the poor have to buy. Thus, the poor contribute to the cost of government in proportion to the amount they spend, too. The overall effect is equivalent to a sales tax, but with a real sales tax food could be exempted.
What was the necessity for different rates of income tax for different earners? It must be to add to the grand illusion.
by E.C.Forster